CAPACITY UTILISATION IN SMALL SCALE INDUSTRIES- A

STUDY

PROJECT SUBMITTED FOR THE

33rd REFRESHER PROGRAMME

(30.10.2008-19.11.2008)

IN

COMMERCE AND BUSINESS ADMINISTRATION

TO THE

DIRECTOR

UGC-ACADEMIC STAFF COLLEGE

BHARATHIYAR UNIVERSITY

COIMBATORE 641 046.

SUBMITTED BY

Dr.V.BALAJI,PhD.,

LECTURER(SS) IN COMMERCE

SALEM SOWDESWARI COLLEGE

SALEM 636 010

NOVEMBER 2008
 CAPACITY UTILISATION IN SMALL SCALE INDUSTRIES A STUDY

Introduction:

The small scale industries have a pride in our economy. They have a high potential

among others, for generating employment, dispersal to semi urban and rural areas,

promoting entrepreneurship and earning foreign exchange. Aware of this, the SSIs have

been accorded a strategic position in the successive five year plans towards fulfillment of

the socio-economic objectives, particularly in achieving growth with equity.

The Central and State Governments have been encouraging the small scale industries

over the years. Series of institutions and non-government organizations to provide

financial assistance, technical consultancy, training marketing, support legal advice and

etc. It was hoped that such encouragement would result in healthy development and

progress of the small scale industries leading to increased production in various sector ,

creation of vast employment opportunities, good resource mobilization and providing

consumer satisfaction. Even almost all political parties have been supporting expansion of

small scale industries. Thus, there were high expectation that there would be an increase

in turnover, production, profit margin, capacity utilization and exports. But the hopes have

not been satisfactorily fulfilled.

The small scale industries engage themselves in various kind of manufacturing such as

manufacturing of metal alloys and products, machinery, electrical equipments, chemicals,

drugs, electronics, and miscellaneous products. Their numbers have been increasing .

Nationalized banks, financial corporation and other agencies, both under public and

private sectors have been financing the small scale industries. But most of the small scale

units have not been able to achieve capacity utilization greater than 80% , as revealed by

surveys. Thus many of them do not plan to undertake a fresh infusion of capital. Thus,

there is a large number of sick units, on hand they are suffering from under capacity

utilization and on other, low profit margin. Perhaps one defect has led to another

handicap and vice versa. Therefore, they failed to secure adequate order for their

products and covering the operational costs and incur losses. Disturbed labour relations

have further aggravated their difficulties.

Recent study conducted and at Dakshina Kannada and facing Udupi district of

Karnataka have indicated that more than 80%of the industrial units in the various

industrial estates of the two districts are either closed or sick and facing closure.

This is true not only in the case of small scale industries but even in the case of

the medium and large scale industrial units though they are very few in numbers.

The fact the same scenario prevails throughout the country and difference, if any,

is only in degree can not be a consoling factor. Under utilization maybe the root cause

of small scale units’ ill health. There are different causes for underutilization of capacity in

the small scale units. These include power cut, lack of demand, lack of working capital

which appears to be the most serious problems hindering the full utilization of the

installed capacity, which decides the quantum of production and its consequent profits.

Other causes include lack of timely supply of required raw material, concentration of

many same line of unit in one area, labour scarcity, inadequate infrastructure facilities ,

credit sales etc. Underutilization of the capacity is the result of several influencing factor

and no single cause is responsible for it.

Objectives of the study:

Central and State Government as well as their agencies for industrial developments have

been launching a number of programmes, schemes and training facilities for the

establishment development and growth of small scale industries. They are also carrying

out many studies and have held numerous symposia, conferences, workshops etc and

have discussed problems faced by small scale industries

The Policies of the central government and state government in the matter of industrial

development have undergone sweeping changes in the recent past particularly in the

post liberalization era. The allocations made in the five year plans, the policy measures

taken in industrial statements and setting up of various national and state level

institutions show the interest of the government in supporting the development of small

scale units. In spite of various measures taken by the government the small scale units in

the country have been suffering due to various problems because various reasons.

In this study emphasis will be given to the capacity utilization of selected small scale

industries particularly the extent and root causes for the underutilization of installed

capacity in the small scale units and to suggest feasible ways and mean to surmount

problems to tone up the functioning of this sector.

The specific objectives of the study include:

To examine and project the existing performance level of industrial units in the study

area

To investigate into the reasons for underutilization of capacity in the Small Scale Units.

To examine and study the impact of underutilization on the various stakeholders of the

units.
To examine the implications of various programmers of the government and other

agencies

To suggest suitable measures based on the findings of the study

Literature Review:

According to the information collected from small scale industrial centre ,Government

agencies for small scale industries and some of the associations of the small scale

industries no in-depth studies have been made till now on the capacity may be

considered as one of the problems, but neither the entrepreneurs nor the concerned

authorities have taken up this issue very seriously.

Business out look survey conducted by confederation of Indian Industries(CII)based on

preliminary analysis of responses from 352 small and medium members reveals a dull

scenario(June-2003).However, the small and medium industry foresees and improvement

in the business situation in the coming years and expects an increase in turnover

production, profit margins, capacity utilization and exports.

The CII survey covers a broad spectrum of industry groups and activities of the small

and medium industry members all over the country. The survey relates to the actual

performance of industry. From the survey report, on can understand that any of the

internal or external problems of industry ultimately affects the production capacity.

David H.Hort explains in one of the books on entrepreneurship that during the period of

depression capacity under utilization is found in almost all industries. Market trend is

directly connected with capacity utilization.

 Small Enterprises Development Management and Extension (SEDME) published articles

on capacity Underutilization in small industries. Prof.Krishnakumar,Dr.Ramnath and

Haphzibah conduct one of the studies. The researchers took sample units at Hyderabad

and Secundrabad. The study revealed that 50% of small scale units were not in a

position to utilize more than 50% of the installed capacity. In the study prominent reasons

indicated by the entrepreneurs are inadequate market demand and inadequate working

capital. Other reasons are irregular and inadequate supply of power etc.

In another article of SEDME, the study conducted by Professors Jaychandran,Narendra

Kumar and Dr.Himachalam at selected small scale units of Tirupathi Industrial Estate

discloses that 50% were utilizing 25% to 50% capacity and the remaining 50% were

utilizing 50 to 75 percent. And no unit was utilizing more than 75% of plant capacity.

Further it revealed that age of the unit alone is not accountable for the extent of capacity

utilization. Entrepreneurial talents and problems, which confronted the unit, also

influenced the level of capacity utilization in the small-scale units under study.

Justification:

1.This study is intended to take up the responsibility of making a case for small scale

industries participation in the economic development that may help us to know better

about the regional variations.

2.And this study may fill the gap between the studies on small scale industries conducted

and the policy matters of government ,financial institutions and banks.

Research Methodology:

The study will be descriptive and analytical in nature. The research will be

mainly based on the primary data. However the necessary information and data will also

be collected through secondary sources like Journals, Reports, Government

Publications, Publications of Industrial Associations, Research Organizations and

Industrial Directory and Relevant company documents.

The research strategy used will be sample survey where a representative part

of the target study population will be taken and sampling elements(respondents) will be

directly contacted to obtain the relevant data using a structured questionnaire. This will

also be supplemented by using interviews to collect the same. Besides the content

analysis will be a combination on unit variant and multi variant analysis including many

inferential statistical tools to test many hypotheses developed.

General Conclusion:
 The present study aims at examining the capacity utilization of small scale industries

and the reason for not utilizing it to the full extent. Capacity utilization will be examined taking into

account the location of the unit. The industry group to which it belonged, year of establishment, form

of organization, investment in plant and machinery, the entrepreneur’s background and reasons

indicated by the entrepreneur.

Now in this era of socio-economic transformation and favourable condition it is the turn

if small scale industries to rise to the occasion and tell the society that they are capable of producing

results.

Bibliography:

1. Small Scale Enterprises- Vasanth Desai, Himalayan Publishing House.

2. Business Environment- Francis Cherunilam, Himalaya Publishing Company

3. Entrepreneurship- David H.Molt, Eastern Economy Edition.

4. Kanara Small Industries Association Industries Directory.

5. Small Enterprises Development, Management of Extention-1990&1994

6. Business Outlook Survey of Small and Medium Enterprises,by CII

7. Information through Internet(htt:/www.austinhomeloan.com/economic.cu.html)